How You Can Manage Budgets and Stress this Tax Season
/Author: Lauren Bringle Jackson, AFC®
The deadline for filing your 2019 federal income tax return has been extended to July 15. With everything going on globally, this item on your to-do list may be pushed to the back burner. And rightfully so. Even in a normal year, filing taxes may trigger feelings of anxiety and panic. Will you owe taxes or get a refund? Do you have all the paperwork you need to file? Should you use a tax person or file online?
With so many questions, filing your taxes can be a stressful experience. Some people are willing to do just about anything to avoid the wave of stress that comes from filling out tax forms.
Tax season, however, does not need to be as stressful as many make it out to be. With the right preparation, there are ways to alleviate stress, avoid surprise fees, and best use your refund to support your financial future.
Let’s take a look at how to get started...
Taking deep breaths and taking action will help you feel peace throughout tax season.
Avoid Paying for Simple Mistakes
Last year, 80 percent of people may have missed a new step on their taxes. Unless they corrected the error this year, they’re likely to get hit with another nasty tax surprise – and a penalty fee.
These fees could either eat into your tax refund, or add to the tax bill you already owe. And the timing couldn’t be worse.
According to a recent OnePoll and Self-sponsored survey, 70 percent of people are somewhat or very dependent on the money they receive from their annual tax return. Forty-four percent say owing the IRS would derail their 2020 budgets.
The top items people plan to use their refunds for are:
Paying off credit card bills (43%)
Creating a savings safety net (41%)
Food shopping (40%)
Utilities bills (38%)
Rent/mortgage payments (31%)
At Money & Mimosas, we recommend these five savvy ways to use your tax refund.
If you keep paying for past tax errors, it could interfere with your ability to tackle your future financial goals. Filing your taxes late or incorrectly could cost you extra fees and penalties you didn’t plan for too.
If you need more guidance on filing, there are tons of nonprofit organizations and other tax professionals that could help you correctly file your taxes on time. People who make about $56,000 or less, have a disability, or have limited English proficiency can also qualify for the Volunteer Income Tax Assistance program, which provides free, basic income tax return preparation.
In San Francisco, Tax-Aid is a fabulous non-profit helping folks around the Bay Area file their taxes.
The Tax Counseling for the Elderly program also provides free tax help, particularly for people age 60 and up.
My point is, you have options, and resources to turn to. So get the help you need so you don’t pay for it later.
Put Your Refund to Work
If you’re expecting a large refund this year, be sure to have a plan in place for how to use that money. There are many ways to use your tax refund to get serious about your financial health this year, while planning for your financial future.
Here are a few examples...
Focus on your emergency savings fund
Instead of spending your tax refund on paying off debt or taking a vacation, put part of it towards an emergency savings fund. This fund creates a financial safety cushion you can pull from in case of an emergency.
Invest in your future
Once your basic financial needs are met and you have a solid emergency savings in place, consider investing as a next-step. There are two basic ways to invest your money – by either investing to grow your current income or investing for your future retirement.
Build your credit
There are two basic ways to use your tax refund to build your credit — pay off what you already owe or open a new credit account. It’s a smart move to pay off any outstanding credit card bills because credit usage (utilization) plays a key role in your credit score.
If you’re new to credit, or have bad credit, consider putting your money towards something like a credit builder loan or a secured credit card. That way you can build credit while putting some money away for later.
Meet with a Financial Counselor
If you struggle with saving, paying down debt, or building credit, consider using some of your tax refund to meet with a Financial Counselor. They can help you create a plan to build a strong financial foundation.
This Tax Season, Flip the Narrative
Rather than letting your taxes become a top stressor for you, take back control of your financial future this tax season. Set yourself up for success by using your refund, and your resources, to get ahead, not just to get by.
About the author: Lauren Bringle Jackson is an Accredited Financial Counselor® and Content Marketing Manager with Self Financial – a financial technology company with a mission to help people build credit and savings.
About Money & Mimosas: Money & Mimosas was started as a passion project by Danetha. A former NFL cheerleader turned entrepreneur, she started blogging as a way to combine all of her passions into a career. Money & Mimosas is now enjoyed by readers in over fifty countries with the same dream of achieving financial freedom without living frugally.
